CHANGING THE METHOD OF PAY: Assessing the Change to Time Rates at Big Foot

Posted by Kathryn Schwartz on March 18, 2015
CHANGING THE METHOD OF PAY

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What factors contributed to survival in the shoe industry?

We do not have information on the mode of compensation for firms in the LRD, so our analysis is limited to examining the relation between survival in the sector and the share of labor costs. Table 5 presents linear probability and logistic equation estimates of the probability of survival for the 1967 cohort of establishments as functions of labor’s share of costs and sales per employee and earnings as of 1967. Column 1 shows that firms with greater labor productivity had a better chance of surviving than other firms.

Column 2 finds that firms with higher earnings also had only a slightly higher chance of survival, possibly because higher earnings are associated with labor skills and niche production of higher quality shoes. Column 3 shows that combining the productivity and earnings figures together, establishments with high labor costs are most likely to have exited the industry. Column 4 shows that establishments with more nonproduction workers were also more likely to close down; this may reflect piece rate systems of pay in which firms needed relatively many supervisors or monitors to maintain quality of production.

Assessing the Change to Time Rates at Big Foot
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We turn next from the industry as a whole to the situation of a single firm, the Big Foot Shoe Company—one of the last American shoe manufacturers. BF produces men’s work shoes and sports boots in four shoe production facilities in the U.S.—two unionized plants in the Midwest and two nonunion plants in southern border states. The firm sells much of its product through its own retail outlets, which makes it sensitive to service at the point of purchase and direct consumer response to its products.

Incorporated at the beginning of the twentieth century, BF is an old firm that has been run in a highly paternalistic manner in a small Midwestern town. It has had the same international union for more than fifty years and consults and negotiates with the union for any proposed change in compensation policy. The majority of managers in the firm have come up from the shop floor and from the local area, while the family that owns the firm has taken a large role in management.

These characteristics make BF similar to the famous Lincoln Electric Company Case Study which promoted the virtues of piece rates as a method of developing a high productivity and profitable manufacturing establishment (Lincoln Electric Company, 1983). Because of its close link to its community, BF is more committed to producing shoes domestically than most of its competitors and has kept the heart of its production operation in the U.S. By contrast, its chief U.S. rival went from producing 2/3rds of its product domestically to producing 2/3rds offshore. In 1998, another major U.S. shoe firm, Bass Shoes of Maine, closed its U.S. facilities.

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